The Russian oil price ceiling and the European market crisis

The European Union is currently trapped by it’s own ambush that have set alongside the USA. The former President of France, Charles de Gaulle, used to say that Europe always has to remember two things: USA is not Europe; and England is an island. But it seems that the political classes from Berlin, Paris, Rome and London have forgotten about this, once they act to increase the blocking of the supply and market of the Russian gas in the european territory. The same energy resource on which they are extremely dependent.

Just to show some informations that reveal the size of the crisis that the EU has entered, the organization depends on the net imports to fulfil 84% of its own domestic gas consumption. Approximately 38% of the EU gas imports comes from Russia. Preventing Russia from supplying its gas because of the european “sanctions” will drag the eurozone to recession.

In this weekend, the G7 countries agreed to enforce the famous Russian oil price ceiling in the winter’s eve. Of course, this idea comes from the USA, and it was the United States secretary of the Treasury, Janet Yellen, who said in June that “the most powerful weapon” that they have is to limit the price on the russian oil to supposedly reduce the inflation. Even leaving from the G7 meeting, the Minister for Intergovernmental Relations, Nadhim Zahawi, have said the decision was taken in Washington by the North American secretary Yellen.

So many attacks on OPEC+, marking that organization as if it were a cartel, make that this new measure draw between the lines that the G7 seeks to operate as a cartel to set the prices at convenience in this complex scenario, where none of those countries have enough energy resources to fight in this dynamic compared to Russia.

The Deputy Prime Minister of Russia, Alexander Novak, answered that, if the States or the companies enforce the restrictions on the prices, Russia will stop the oil and oil products supplies.  Novak also have commented that this movement could completely destroy the world market oil.

It should be noted that, in the face of sanctions against Russia, oil revenues were maintained because Moscow found new markets in Asia, and has a strong gas and oil platform that allowed them to dodge Western bullets.

In fact, Novak’s projections for the year-end production are about 525 million tons, keeping the track of the last year at 524 million tons.

On the other hand, in the middle of the race to seek new alternatives to the supply of Russian gas, days ago, German Chancellor, Olaf Scholz, received the President of the Government of Spain, Pedro Sánchez, to discuss the possible reactivation of the construction of the Mid-Catalonian (MidCat) pipeline whose gas network would cross the Iberian Peninsula linking Spain and France.

The project of this resurrected pipeline was designed to redirect the Algerian gas stored in Spain to France and, from that last point, redistribute the gas to other European countries, such as Germany. Its construction had been halted due to the high costs.

However, the French government is not convinced to participate in this project because the numbers do not match. First, completing the construction would take a long time; second, the construction cost would be very high; and, no less important, it is that it could only provide between 2-2.5% of European gas consumption.

In addition to all this, the European Statistical Institute recorded inflation of 9% in August, due to the increase in energy and food prices.

Similarly, the international credit rating agency Fitch Ratings published a report, “The gas crisis to push the euro zone into recession”, indicating that a recession in the euro zone is likely to occur as a result of the deepening gas crisis. This result would happen through all the second half of this year, with Germany and Italy experiencing annual declines in their GDP by 2023.

Thus, the price cap measure would only work if other states, such as India or China, were involved in this network or G7 cartel, because they are major players in the purchase of these commodities. Which is not going to happen. Otherwise, it would lead to the general collapse of supply chains.

Translation by Thiago Jesus. Graduated in Law from UVA and specialist in international law

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